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Capacity utilization rate and the business cycle


The industrial capacity utilization rate is defined as the percentage of resources already installed or paid for by firms, such as capital and labor, actually used by corporations and factories to produce goods. This rate tends to move along with the business cycle: increasing during expansions, when companies are trying to produce more goods to meet demand, and declining during recessions, when demand for goods declines. And as the graph shows, the historical trend of total capacity utilization has been declining, as has real GDP growth.

Indeed, the average capacity utilization rate between 1967 and 1979 was around 84 percent, it declined to 81 percent between 1980 and 1999, and dropped down further to 77 percent between 2000 and 2016. Similarly, average GDP growth fluctuated around 3.3 percent between 1967 and 1999 and declined to around 1.9 percent in the period between 2000 and 2016.

How this graph was created: Select “Real GDP” from the “At a Glance” menu on the home page. Go to “Edit Graph” and under the “Add Line” panel search for “Capacity Utilization: Total Industry” and add it as a new line to the graph. Then, format Line 2 to be on the right y-axis position and change the line style to dash. Finally, select the desired date range.

Suggested by Maria Arias and Yi Wen.

View on FRED, series used in this post: A191RL1Q225SBEA, TCU


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